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Consequently regulation is an attempt to enhance the

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Unformatted text preview: ed by regulation. Although regulation may be socially beneficial, it also imposes private costs, or a regulatory burden, on individual FI owners and managers. Consequently, regulation is an attempt to enhance the social 9 A good example of a negative externality is the costs faced by small businesses in a one-bank town if the local bank fails. These businesses could find it difficult to get financing elsewhere, and their customers could be similarly disadvantaged. As a result, the failure of the bank may have a negative or contagious effect on the economic prospects of the whole community, resulting in lower sales, production, and employment. sau86198_ch01.qxd 12 Part One 4/21/02 8:52 PM Page 12 Introduction Net Regulatory Burden The difference between the private costs of regulations and the private benefits for the producers of financial services. welfare benefits and mitigate the social costs of the provision of FI services. The private costs of regulation relative to its private benefits, for the producers of financial services, is called the net regulatory burden.10 Six types of regulation seek to enhance the net social welfare benefits of financial intermediaries’ services: (1) safety and soundness regulation, (2) monetary policy regulat...
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